The IMF has said that Pakistan requires timely finalisation of a recovery plan from devastating floods to support discussions and continued financial support from multilateral and bilateral partners.

IMF (International Monetary Fund) resident representative in Islamabad, Esther Perez Ruiz, on Thursday said, “The timely finalisation of the recovery plan is essential to support the discussions, along with continuing financial support from multilateral and bilateral partners.

The statement comes as Pakistan faces a serious economic crisis with the rupee losing value against the US dollar. It urgently needs financial assistance and inflow of dollars to keep the economy running and check the trend of rising prices.

Pakistan was already battling a full-blown economic crisis, with decades-high inflation and dwindling foreign exchange reserves, when it was hit by floods earlier this year. It had entered a $6 billion IMF bailout programme in 2019, and the ninth review is currently pending.

She added that IMF staff is continuing discussions with authorities over policies to reprioritise and better target support towards humanitarian needs, while accelerating reform efforts to preserve economic and fiscal sustainability.

Devastating floods killed more than 1,700 people and inflicted billions of dollars of damage. The government’s estimates of the damage have varied from $10-40bn.

The finance ministry said last week that it would “expeditiously” finish technical engagement with the IMF as part of the ninth review of the programme, but a firm date for the review completion is yet to be announced.

The funds will be a lifeline for Pakistan, which is struggling to convince international markets and ratings agencies that it has the funds to meet external financing requirements, including debt repayments.

Pakistan has a $1bn international bond repayment due early next month. The State Bank of Pakistan’s foreign reserves stood at $7.9bn as of last week.

Bank account made compulsory for buying $2,000 or more

It is this economic crisis and depreciating rupee that has forced the State Bank of Pakistan (SBP) to make it mandatory to open an account before buying $2,000 or above.

State Minister for Finance Aisha Ghaus Pasha on Wednesday informed this to the Senate’s Standing Committee on Finance in Islamabad.

The government and the SBP have taken several steps to get control over the dollar outflows. Finance Minister Ishaq Dar, who expressed confidence to meet the external account requirements during the current fiscal year, is being criticised for his failure to bring the dollar rate below Rs200 and replenish the country’s dwindling foreign exchange reserves.

But curbs on the opening of letters of credit (LCs) have already affected industrial activities as many sectors were complaining about a shortage of raw materials and parts. No official figures about the stuck-up LCs are available but the importers claim it could be around $1 billion.

At the same time, the importers are found in a long queue to get permission for the LC opening. This is not easy since the banks are facing poor inflows of dollars which makes it harder to meet the importers’ demand. The cut in imports particularly raw materials has created a serious problem for the export industry.

Bankers too say the condition of opening an account before buying $2,000 would be highly difficult. Banks don’t open foreign currency accounts these days. It has been made almost impossible to go abroad with dollars. The only way is to get dollars from the hawala market at much higher rates.

The hawala market offers Rs20 to Rs30 per dollar more than the banking market. Some exchange companies said the hawala dollar rate is even higher than Rs260.

Under the new condition, documenting the dollar buying, cheque and bank account is compulsory. The State Bank has made it mandatory to transfer payments through bank accounts to purchase dollars.

The total amount for buying dollars has already been slashed by 50pc from $10,000 to $5,000. However, the new condition of the opening of bank accounts before buying dollars is almost put a cork on the outflows from the official channel.

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